Thursday, December 04, 2008
The length and arduousness of the process that will be involved in somehow, someday supplanting the U.S. Dollar as the world's reserve currency has been lent credence around the globe in recent months since the financial crisis took a turn for the worse.
The greenback has continued to gain against nearly every other currency in the world during this time as former high fliers have dropped like rocks. Dropping like a very dense rock recently has been the Ukranian Hryvnia, a fall that may or may not have anything to do with the image below that adorns the 100 hryvnia note.
(Apparently that is famed Ukranian poet, artist, and humanist Taras Shevchenko, who, for all I know, may have been quite a nice fellow, but who clearly posed challenges for sketch artists and engravers.)
With the euro-zone experiencing more than its share of troubles and with no government (or military, in the extreme case) to stand behind the central bank and its currency, the U.S. Dollar has been the go-to currency for many individuals, corporations, and governments, this process playing out once again in a former Soviet Republic as documented in this Wall Street Journal report($).
Ukraine's currency spiraled to a new low Wednesday as data showed the country's population ditching the hryvnia in favor of the dollar faster than ever.It almost seems unfair that a good portion of the world's financial troubles originate in the U.S., yet our currency and, more importantly, our mounting debt are the main beneficiaries of this turmoil.
The former Soviet republic is entering a full-blown economic and financial crisis as global demand for steel, its main export, collapses, while Russia continues to threaten it with an ever-higher bill for its gas imports. Confidence in the politically divided government's crisis plan, which is backed by a $16.5 billion loan from the International Monetary Fund, is fading.
Ukraine's hryvnia has lost more than 60% from a peak of 4.50 to the U.S. dollar in the spring.
November data released by the National Bank of Ukraine showed it had already hemorrhaged almost 80% of the first part of the emergency IMF loan within a month of receiving it.
Panic was further stoked by media reports earlier this week that President Viktor Yushchenko, onetime hero of the 2004 Orange Revolution, was preparing a decree ordering the forced conversion of the population's dollar deposits into hryvnia. Mr. Yushchenko denied the reports as "nonsense" Wednesday, vowing he wouldn't intervene in the central bank's monetary policy.